Tax deadbeats and other scofflaws are cheating Oregon out of $2 billion, even as severe cuts loom

View full sizeTax scofflaws and assorted deadbeats are cheating Oregon government out of hundreds of millions of dollars at a time when lawmakers are gearing up for another budget battle that may mean withering cuts to schools and other state services.

State records analyzed by The Oregonian also indicate the state has missed opportunities to go after unpaid bills and left serious amounts of money on the table.

The current tab for delinquent state payments: $2 billion, according to a 2009 report by the Legislative Fiscal Office, a figure that has doubled over eight years. Meanwhile, the number of nonpayers is growing at a rate that outstrips the state's ability to hunt them down and recoup its losses.

Accurately gauging how much of those unpaid bills can ever be collected is impossible. For instance, a felon sentenced to prison and $50,000 in restitution is unlikely to make good on the debt.

But with a projected $2.5 billion budget shortfall facing the Legislature when it convenes in January, lawmakers will be looking for cash wherever they can find it. And that's likely to include the rapidly growing gap between what the state is owed and what it collects.

"It's just one of those problems that's always out there," said Sen. Ginny Burdick, D-Portland, who chairs the Senate Revenue Committee. "But especially during a period of budget shortfalls, your first line of attack is to collect the money you're already due. That's what we have to focus on."

Burdick and her House counterpart, Revenue Chairman Phil Barnhart, D-Eugene, have scheduled a joint hearing Monday to question state revenue officials about delinquent tax payments. It's an informational hearing but could be a precursor to a deeper look at the state's collection practices.

"I'm really serious about getting to this issue," Burdick said. "It's not fair to all the other taxpayers to have people reneging on their responsibilities."

What others do

Chronic budget shortages have prompted states across the nation to refocus on debt collection as a way to shore up finances. Many, including Oregon, have established tax "amnesty" programs that waive some fines and interest to nudge holdouts into paying up. Three years ago, California began publishing the names of the 250 biggest tardy taxpayers -- a list that has included Dionne Warwick and Pamela Anderson -- in an effort to shame them into writing checks. Hawaii recently started publicizing a similar list.

In Arizona, lawmakers slashed state tax auditors and enforcers as part of across-the-board budget cuts, only to hurriedly add some back after state revenues plunged.

In Oregon, officials responsible for enforcing payments say they are doing what they can with the resources they have. They don't seem overly concerned, however, about the rising tab of uncollected debt.

"There are enough liabilities out there that I could double my collection force and probably still not touch it all," said Elizabeth Harchenko, director of the Oregon Department of Revenue, which has primary responsibility for unpaid debt collection. "The solution isn't just to throw more people at it."

Goal is productivity

Instead, she said, she wants to make her staff of 92 collection agents "more productive."

But a recent audit of Harchenko's department by the secretary of state's office found that despite doubling the amount of money spent on collections from 2007 to 2009, the amount of money collected from delinquent accounts increased a paltry 8 percent. The audit also found many cases of slow or inefficient collection efforts and overburdened compliance officers.

"We found instances in which it took agents between eight and 20 months from when they received a new liability until they called the taxpayer," the report said. In another case, the audit noted that state revenue agents worked a case for six years before turning it over to a private collection agency.

The report's most embarrassing finding, however, was that the state does not match federal tax data with state tax rolls to find people who should file Oregon returns but don't. When the auditors did that, they found 66,000 people who owe state taxes that revenue officials were unaware of.

State Auditor Gary Blackmer estimated those filers owe the state about $100 million, of which about half could be collected without too much difficulty. And that was for only one tax year.

Unpaid judgments

Oregon's judicial system is another big source of unpaid -- and largely untapped -- revenue. At last report, people owed state courts more than $800 million in fees, fines, restitution and other payments imposed by judges.

Much of that never will be collected because the people who owe it are behind bars or have no means to pay it, said Phil Lemman, spokesman for the court system. But not all.

"We asked the Legislature for more staff to have more centralized and aggressive debt collection," Lemman said. "We think it would be a net revenue producer."

But getting lawmakers to pony up for more staff for one agency at a time when they're cutting and furloughing workers at others generally is a losing proposition, Lemman said.

Private collection agencies in Oregon say they could lend some muscle to the state's problem but largely have been sidelined in favor of in-house efforts. The state uses a handful of private agencies, most of them headquartered out of state, but typically gives them the oldest and most difficult cases.

Feeling left out

Oregon collection firms lost out on the jobs because the commissions they asked for were too high. And many simply didn't apply because of the state's low-commission requirements.

"It's been kind of frustrating for our local guys," said Jim Markee, a Salem lobbyist who represents collection firms. They're pros, they have sophisticated computer systems designed to track down delinquent accounts, and they know the legal ins and outs of getting money from reluctant payers, he said.

But attempts to persuade lawmakers and agency heads to use more private collectors have come up against stiff resistance. In some cases, it's unions concerned about taking work away from their members. In other cases, it's hesitancy over the commissions charged by private firms.

When the state does use private firms, it also restricts what tactics they can use. For example, if a private firm wants to garnish the account of someone who owes the state, it first must get approval from the Oregon Department of Justice.

House Majority Leader Mary Nolan, D-Portland, has taken a lead role in trying to boost state revenue from unpaid debts. She said the Legislature will focus on some of the issues raised in the Revenue Department audit but isn't ready to declare whether the state should hire more revenue collectors, work more closely with private firms or take some other route.

"I operate from the premise that it's almost impossible to get complete compliance," Nolan said. She said the state must seek a balance between aggressive enforcement and "fairly enforcing the tax laws."

Harchenko, the revenue director, cautions against expecting a state budget bailout from her department. "We cannot collect our way out of this structural deficit in our financial system."